The Truth About the GM Bailout

With Chrysler and GM announcing they have repaid their government loans, it did not take long for Democrats to crow that the federal auto bailouts were a clear success. Indeed, the president and his supporters hope to make political hay from these efforts for the 2012 elections.

Never mind that the bailouts were a use of taxpayer dollars not even within the initial scope of the constitutionally questionable TARP. Never mind that taxpayers are still a major shareholder in GM. And never mind that these bailouts have ingrained a “too big to fail” strategy among American businesses, who now feel entitled to federal funding should they fall short in the marketplace.

In reality, GM’s claim about paying back bailout money is misleading. Much of the $50 billion in federal assistance came in the form of equity purchases, with the government taking a 61-percent stake in the company. The cash loan totaled “only” $6.7 billion in taxpayer dollars. For taxpayers to recoup their investment, the federal government would have to sell its 365 million shares at a profit. The break-even price would be $55 a share, but GM is currently selling at $28.90.

And it doesn’t look like share prices are increasing any time soon. The stock market is up since mid-November by about 8 percent. But the stock of General Motors has bucked the trend. It’s down more than 16 percent since its initial public offering on November 18, 2010.

That’s the bad news—especially bad for the taxpayers, because it means we’ve lost roughly $11 billion in the government’s experiment in big business, with no real prospect that the market performance of GM will turn around anytime soon—not as long as the government is calling the shots, anyway.

There is no justification for sticking the taxpayers with the bill for this misadventure. The taxpayers didn’t want the bailout in the first place—every poll, not to mention the 2010 elections—confirms that view.

As things now stand, the taxpayers are innocent victims of the fraud that the bailout constituted from the beginning. Therefore, the only fair way to correct the injustice is to require General Motors to repay the taxpayers the $11 billion, or whatever the final amount turns out to be.

Since the automaker clearly doesn’t have that kind of cash lying around, one solution would be some type of long term debt financing. Such a settlement would not only be good for both the taxpayers and General Motors, it would also have the salutary effect of chilling the desire of any future big businesses from running to the government for a bailout.

The Washington Post got it exactly right when it wrote that, “The mere fact of government ownership is a drag on GM’s profit potential.” Consumers don’t want to buy from “Government Motors,” and top-notch executives don’t want to work for it. In addition, the bailout has brought unstable leadership: from its founding in 1923 until the government takeover in 2009, GM had a total of ten CEO’s, an average tenure of 8.6 years each. None of the three CEO’s since then has lasted even a year.

Worst of all, corporate leaders have been forced to base their decisions not on market considerations, but on the political/ideological prejudices of their government handlers. The Obama administration is ideologically committed to “green” development, and so GM has produced virtually unsalable hybrid Volts, which even at a non-competitive $41,000 lose money each and every one.

It’s axiomatic that government can’t run a business profitably. From post offices to railroads to mortgage companies, when bureaucrats are in charge, the bottom line inevitably turns red. The General Motors bailout has shown us, in excruciating detail, why this is true. An orderly bankruptcy proceeding may have been a more effective approach to re-inventing General Motors. Instead, the Obama administration sided with the unions to avoid the restructurings that are necessary.

The government should get out of the car business. It should never do it again, in the automotive industry or in any other industry. And it should see to it that the taxpayer-victims get paid back in full for the government’s recent experiments trying to run industries.

Matt Kibbe is president and CEO of FreedomWorks, a nation-wide grassroots organization fighting for lower taxes, less government and freedom and the author of "Give Us Liberty: A Tea Party Manifesto."